Currently, stop losses for stocks must be “hard entered.” “Hard entered,” describes a fixed value at which the stock will sell. For example, if a person purchases a stock for $100 per share and plans to be out of town for several days, there are limited options to protect the investment from market decline. However, a person might want to sell the stock, for example, if it drops in value to 20 percent of its highest level. The only option currently available is to “hard enter” an $80 (20% drop from $100) stop loss. Yet, if while out of town the stock increases to $150 in price and then begins to drop, the stock would not be sold until it reaches $80. Conventional stop losses can offer downside protection but not upside protection.
Difficulties with the current systems include a failure to provide stop losses to follow the stock up while providing downside protection in case of market decline, a failure to allow protection of gains that could be realized while the investor is unable to “watch” their investment, and a failure to have the “trigger” for selling the stock expressed as a percentage of the purchase price or high value of the stock.
There is also a failure to provide a combination type of protection that would allow for percentage amount protection in a growing market until the percentage increases to a maximum value for the stock at which point the investor or manager desires to changeover to the fixed amount.
Therefore, it is desirable to provide a system and method which provides stop loss protection that tracks and updates the highest price achieved by an investment and that functions by helping to ensure that the price does not drop below a fixed percentage of the latest high price. It is also desirable to provide a system and method that provides the additional option of setting a fixed price drop when the high price crosses a particular threshold to act in substitute for the percentage-based price drop, generally to ensure a smaller loss than the percentage-based price drop, which grows in absolute terms with increases in the latest high price.